FINEOS Corporation Holdings plc

Thank you for standing by and welcome to the Finneos Corporation Holdings PLC full year results briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Michael Kelly, CEO. Please go ahead.

Hello and welcome everybody to the Phineas FY25 results presentation. I'm joined here today by our CFO, Dean Lina. And between the two of us, we're going to give you an overview of the results presentation that we published on the ASX this morning. So I'll click on to slide two. And this slide really covers off, you know, our playbook, mission, vision and purpose. And it's what gives Finneas the real clarity and alignment within our team in terms of our focus on life, accident and health, in terms of our vision, in terms of protecting people from illness, injury and loss and making that accessible to everybody. And of course, our purpose, working with our carriers and employers to help them care for the people that they serve through the delivery of superior insurance technology. And more and more we see in the life accident health world a move from just, you know, being insurance and protection and giving, you know, payments to more caring in terms of return to work and helping people recover from illness, but also prevention and, you know, trying to keep people healthy before the kind of the situation where they need protection even eventuates. So we're seeing more and more of that trend of prevention in the marketplace from our own carriers and indeed we see that as a very positive situation. I'll turn now to slide three and cover the highlights for Phineas last year. So subscription revenues have grown to 75.6 million euros and that's up 8.2% on FY24. representing 54.6 of our total revenues. And our ARR coming into this year was 78.3 million at the 31st of December, up 10% from the 71.2 million on FY24. And then total revenues was up 3.9% on FY24, total revenue of 138.4. But on a constant currency basis, it's up 6.3%. And it would have been 1.41.7 million if we had reported on a constant currency basis. So slightly above the midpoint of our guidance that we gave last year. The gross profit, 105 million. Again, you know, gross margin 76.2%, which is really healthy. And gross profit is up 5% on FY24 and the gross margin is up from 75.4. And really we're operating at a really good gross margin level. And that's part of our target for next year, which I'll talk about at the end. Our EBITDA was 30.4 million and the EBITDA margin was 21.9%. Again, representing a healthy jump of 50% up on FY24. and the margin being up 15.2% on FY24. And our cash position at the end of the year was 27.8 million. And that was up again, you know, by over 8 million. Positive free cash flow within that was 6.4 million. And obviously there's no debt in this company as well. On the 6.4 million, there was an extra cash received from share options that had converted as well towards the end of last year. So added to the 6.4 is the 1.6 million in the note at the end of the page there, which brings us up to the 27.8. Turning to the next slide, slide four, we're looking at the operational highlights. And of course, the pre-cash flow is something we promised the market in November of 2024 when Ian and I came down and we did our roadshow. And we're delighted we've come through with that and a very healthy number it is too. But we're also thrilled that we've hit a net profit as well. And we didn't promise that to the market in FY25, but we're certainly very, very pleased with it. And really what we're seeing in our business is we're demonstrating higher margins from the cost efficiencies and the growth that we're generating out of the business. So overall, very pleasing in terms of this business coming back into free cash flow, and profitability as we move forward. Last year, we won four new name North American carriers licensing the Phineas admin suite for claims and absence. I just want to stop here and point out that we have rebranded our products because as of 25.4 release of Phineas, we actually released the full admin suite to all of our clients in the cloud. However, most of them are still only using claims in absence. So what we decided to do to make sure that our clients fully understood that underneath the water, you might say, even though they're using claims in absence today, but underneath the covers, they have the full access to the full admin suite when they license the product, which is phenomenal, really, to be able to give them that opportunity with no pre-integrated or no big SI project. that they could just switch on extra components of Phineas, and their users and their IT people are seeing a multiplier effect out of that. So we won four new names last year, albeit a little bit later than we would have liked. Certainly the conservative nature of our industry and just what has been going on in the markets over the last 12 months or so, the deals were a little bit slower coming in, but again, we're delighted. And every deal we win is a very long-term contract. So we sign our clients up for five years and we end up doing business into the long term and actually expanding and cross-selling across the customer base. So there's really growing evidence that Phineas is market leading in this employee benefits space. Group voluntary and absences are a real key focus. And that's why we're winning the deals. And two existing US clients also contracted to upgrade from the on-premise version, the old version of Phineas Claims to the Phineas Admin Suite for Claims. And one of those was a top 10 group carrier. So again, a sizeable deal for us in terms of the uplift and the momentum on both of those is going really, really well. So again, we're feeling our carriers really leaning in and increasing their commitments to us and really What we're doing is replacing very old infrastructure that they have with a modern core platform, cloud native and embedded AI and so on. And I'll talk about that as I go through. So we're seeing that significant momentum growing into a lot of activity in terms of go lives, upgrades and so on within our services and our product groups. And all of these things are moving much quicker for us. as we drive the efficiency in our business and really deliver the benefits of that to our clients. So we've also built the SI partnerships, and we're increasingly seeing the SIs now coming up to speed and actually delivering customer success with us, with our customers. So you probably will see some publicity over the next few months where we'll try and bring our SIs into some of the PR that we do on customer success with Phineas and so on. So that's going nicely. And again, we're looking to our SIs in North America now to give us the introductions and help us build relationships with our SI partners in other markets. So again, we've built that kind of confidence with our SIs and they're very happy to lean in and work with us. You would have seen recently an announcement with PwC but we work with EY, we work with Capgemini, and we work with other SIs as well, Deloitte and so on. So all of this is coming to fruition in terms of us moving more to becoming a product company. And then we're gaining a real multiplier effect from embedding AI in our product. So we have a kind of a head start on anyone in terms of people in the industry doing proof of concepts and stuff like that with AI. We have a real system. with a huge amount of data underneath this, which is kept real time. It's all compliant, it's secure. And therefore, when we put our agents to work on Phineas, we're seeing the results very quickly. And our carriers don't have to spend any additional time and money looking around the corners or trying to build stuff themselves. So more and more, we feel that the embedded AI in Phineas is gonna help carriers kind of relax and go forward. But we are in a very, regulated environment and our carriers are quite concerned about AI as well in terms of not automating decisions and stuff that need to be taken by humans and maybe causing any issues with the regulators or indeed with their clients. So AI is definitely something that we are seeing as a huge asset for Phineas and we're gonna basically grow the business off the back of that as we keep embedding. On the next slide, slide five, This one covers our people, and I won't go through this one too much except to say that high numbers of utilization, very high employee retention rates, and, you know, we're down to 1,009 people at the moment. And 16.9% of those are actually contracted in. So we've kept flex in our workforce, which means we can cut back on our workforce, our grower workforce, depending on how things go and so on. But we are in a very strong position with, you know, contractors and with partners who supply resources to us. And they've scaled up on Phineas and are very dedicated to us. So a good story there in terms of the people side. Slide six is the revenue breakdown. And again, you know, no surprise really that North America is our biggest region. And indeed, 80% of our revenues are coming out of North America. We've had some nice wins at the end of the year, and our customers are increasingly doing more business with us in that region. However, we are very keen to look at other regions and to start the work around building ourselves up in the other regions. The EMEA region, we did lose a legacy customer, a smallish customer by U.S. standards, but still we lost that, so the revenue went down in the U.K., But, again, that customer was non-strategic to us. They'd been around for a long, long time with us. And services revenues, we're not aiming for a big growth in our services revenues. We're really aiming for the growth on the product side. So they've kind of leveled off as well. So that kind of concludes my section for the moment. I'm going to hand over to Ian who will cover off the financial slides with you. Thank you. Thank you, Michael, and welcome everybody to this full year briefing of Phineas. And what I'll do now is give you a bit more insight into the financial performance of the company. So if you'll move now to page eight, which is back to the revenues. Obviously, as Michael just said, there are focuses very much on that product revenue subscription fees. We've grown that ARR. We've signaled to the market repeatedly over the last few years that we see services remaining reasonably flat, didn't we? 2.2, so spot on the same. But the subscription revenue, what's driving that is those four new customers. We signed up two of them at the end of Q2. We signed up another two at the end of Q4. So they didn't fully contribute to the growth, but they were a factor in terms of that growth. The two migrations, one of them was quite significant, as Michael said as well. That's going from on-premise to the cloud. And then we had the traditional pricing, and some have moved up a level in terms of what they're consuming for us. So we're very pleased with that growth in the subscription fee, which in turn gave us an ARR growth of 10%, which is very, very positive. As stated before, the initial license fee, you can see a year-on-year reduction in that. Initial license fees pertain singly to our on-premise customers. So anytime they require new licenses, then we charge a fee for that. But we have less and less of them. We have less and less activity there. So you can see consequences of revenue going down. And as we move forward into FY26, you know, I don't see it getting any higher than that. I see it going down a smidgen again. But it is progressively declining. So that's the revenue side. Cost of sales, we've seen an improvement in that compared to FY24. We did have some software costs increases. And we also had to make a provision for an estimated software spend. And just to explain what that actually means, because that actually also impacted the end patent number we gave within this presentation. And that's with our main platform provider, Amazon AWS. Back in December 2022, we signed a five-year contract with them with a committed spend. Any of you that are familiar with the way they contract, the more you commit to, the bigger the discount you get. We made a commitment, but due to the efficiencies we've been driving over the last few years, we're spending less than was originally anticipated. So that's meant that when you look at the full duration of the spend, It means we're probably going to spend less than the five years that we originally estimated. So we had to make a provision for that in the accounts, but the plan is we go back and renegotiate with Amazon AWS for another five years, sometimes during the course of this year. But to comply with accounting practices, we just had to put that provision in. The full size of that provision is about $2.7 million. I know that $1.0 million is allocated against cost of sales. So really that's what's impacted the costings there. In terms of overall operating expense, our initiatives around driving efficiency, around labour being in lower cost regions, looking at better automation through the application of AI as well as just getting economies of scale, have seen the ongoing OPEX going down. So you see a good positive outcome there year on year. percent reduction and an EBITDA very positive move on that you know over 10 million increase compared to the previous year that brings us up to a margin of 21.9 percent and as you know we've committed to the market to achieve 25 percent in FY27 so we're well on track if you go back to FY23 that was around nine percent last year 15.2 21.9 so you can see we're really focused on trying to drive those numbers through And as Michael said, you know, ultimately we got a net profit after tax of $1 million. We never signaled that to the market. We weren't targeting that directly. We were very, very focused on achieving the positive free cash flow. But needless to say, we're delighted with that, and we only see that trajectory improving year on year. And that's a massive turnaround, obviously, from a $5.8 million loss that we incurred in FY24. Moving on to the next page, Another commitment that we made was to keep on increasing that annual subscription fee. You can see the CAGR now is at 12.3%. As I mentioned in the previous slide, we've increased our ARR by 10%. So that's the key figure that we're looking at as well. And then, of course, we've got the big increase in terms of subscription fees. So we increased the percentage of that. And to achieve the targets that we're talking about in So, again, we're extremely focused on that, whereas we're not as focused on revenue in terms of generating that. Now, it's not because we don't want service revenues. It's because we want to work with the SIs. They will invoice directly. The more sophisticated we make the product, the less service are required. For some of our very large customers who are going to generate even larger recurring revenue for us moving forward, they want to take on self-service capabilities rather than get the service from Phineas. For obvious reasons, you know, in terms of their cost management, So all those things impact service fees, but for the right reasons. We had signals back in November 2024, that kind of trajectory, that kind of scissor movement where revenues will go up and costs go down, and we flagged that we're going to see that crossing over. We're almost at touching point there in FY24, but you can see the crossover in FY25, and obviously that's why we're able to, you know, as well as a positive free cash flow situation. So we expect to see that margin continue to increase. That trajectory, you know, it's not going the opposite direction moving forward. It's going to keep going that direction. If we move on then to slide 10, just looking at the OPEX, which you saw the headline up above, look at all the online items there, you know, excluding search and development, which I'll come back to in a moment, we can see a decrease in cost. Common theme, know is with respect to the headcounts and where they are actually located. But there's some other elements there, like on the G&A, you'll also see FX movement, you know, there's a share option charge, increasing it, or decreasing the cost. But that was offset by a decrease in software costs. We had to get more software to the organization to run our business, and some restructuring costs that cost regions our overall headcount year on year is reasonably consistent it's just the work is getting done in different regions without degrading the quality of the work that's been really important to us you know so as we've said before we've had overlap of resources to make sure handovers work very well we have a high demand environment you know where customers expect an excellent service and excellent outcome you know so we've got to make sure we've been managing that very very tightly and we have with respect to r d We've seen some higher software costs, which includes the provision. There's another $0.8 million put against that in terms of that provision that I mentioned earlier on. Slightly lower capitalized R&D costs, but only slightly lower, and we had restructuring costs. Most of the restructuring that we did in FY25 related to our R&D teams. We had resources in higher cost regions, and we decided that we would look to relocate those roles into lower cost regions. So consequently, the restructuring cost was also higher with respect to the R&D team. We, as always, we serve the right, you know, and we will stick in this. If events dictate that, you know, more investment is required in R&D, we are a technology company, then we will look to do that. But still and all, if we move on to the next slide, What you can see is that, you know, R&D as a proportion, and this excludes overhead costs. You know, this is people costs. R&D as a percentage of the overall revenue is continuing to improve. We've signaled that in FY27, and we're looking to get that down to 30%. So you can see the trajectory there is moving in the right direction. Last year it was at 37%. Sorry, the year before last, it was at 37%, and last year it was at 34.7%. So we see that continuing to improve and getting more into industry norms in terms of that percentage. We're still going to invest heavily in R&D, and as we've said before, we will continue to invest in the admin suite. There's all those capabilities customers will require, particularly those customers that need to move off legacy, may require some extra function take on that business, which makes perfect sense for us in order to increase the annuity fee. But progressively, we're investing more in AI and digital capabilities and capabilities to enable better self-service and better onboarding onto our product set. So it's really exciting that we can actually switch that focus to allow customers to move onto our product set in a more effective way. So I don't expect to decrease the amount of money we're spending in OIT, but certainly as a percentage, has been evidenced here. We move on now to slide 12. I don't want to dwell too much into the balance sheet. The next slide's going to talk about cash, and I'll talk about cash there. So development expenditure, that's really the capitalized R&D spend is a little bit ahead of monetization. We expect that to balance out, you know, maybe in 27 there'll be similar figures. There was a bit of catch-up taking place there. We've seen a slight increase as well in trade accruals, but that's really due to an increase in payroll, share option excellence gains, et cetera, and a little increase in deferred revenue, again, because of the fact that we're signing up subscription fees. So we had some new-name customers signed up towards the end of last year. So they'll be put in there along with other provisions. And there's the provision 2.4 in relation to the software spend, apologies. So 2.7 earlier on, I believe. It's 2.4 million. So moving on now to slide 13. So the next cash generated from operation activities, vast improvement there, 38.6 versus 18.8 due to the increased revenue, decreased costs, We're very, very positive. We've got some additional cash in from share options that are exercised of 1.6 million. As Michael mentioned earlier on, if you add in the 6.4, which is the positive free cash flow we generated, 1.6 on top gives you that 8 million difference at the bottom line there, which is a 14.4% increase. So we're very proud of that. We knew that that was very important to the market, very important to us too. Prior to IPO, we were always a profitable company. It's very much in our DNA. We've made the bet. ...recurring revenues and getting back to a positive pathogen situation, which we plan to continue to improve on as the years roll by. So that's it from me. I'll pass back to Michael for the outlook and key priorities. Thank you, Ian. Okay, I'm going to switch over to slide 15. And I'd just like to mention that we won a very prestigious award for embedded AI in the Phineas Admin Suite from the Irish Technology Association. And this was an award which was competed for by all comers. You know, we have a lot of multinationals from the States, particularly in Ireland. It's a hub for EMEA, but also local companies. And we were really called out for the kind of thoughtful way we put the AI into the system and how it was, you know, agentic and assistive in terms of driving better outcomes and presenting users affiliates with, you know, an opportunity to really improve the I suppose, taking the crud out of the back office and driving more positive outcomes for customers and clients. So we were delighted with that. That was towards the end of last year. In terms of key priorities, though, going forward, we're still very focused on Guardian, who are ahead of schedule in terms of their own goals that they set for themselves. We'll continue to drive new business onto the system and make sure that everything goes on this year. But also we're starting the migration from the middle of the year. And we're excited about that because we're in the business of legacy system retirement. And they have a multi-billion book that's going to come across to Phineas. And we're going to continue to scale and upsell large customers. And again, with a focus on benefit realization of the product they have. but also looking at legacy migration and taking their legacy systems out, which with some of these carriers, the scale that they're at is a multi-year project. We've been at it now for three or four years, but we've still got some time to go. But as they grow their business on Phineas, our fees increase. And I want to point that out in this call out. Our fees are not based on perceived SaaS type fees. Our fees are basically aligned with our customer success. So as our customers grow their business, we grow our business. And we're very much in partnership in a long-term relationship with these clients. We'll also increase new business sales. And, you know, our partners are starting to work with us now to identify opportunities where they think our product can fit. And so we're going to see more activities with the SIs. And as we progressively embed AI in the Phineas platform, we're going to continue to see improved platform performance. And already the feedback is very positive. And let's put it this way. We're in very early days in this. We're in a regulated environment, highly regulated with very conservative insurance carriers. They take years to make decisions. So you can imagine when you bring something like this in, that they're very, very keen to make sure that it's all compliant and it fits with the regulator. So, again, this is going to take a few years over in the coming couple of years, but we're getting our customers more comfortable with this. And we have a couple of big customer meetings in March and in Sydney and also in New York. And we'll be talking about this a lot more with them. We're going to continue to drive internal efficiencies through the usage of AI. And I think every company is adopting AI and taking advantage of that, you know, across the whole spectrum of the business. And then, you know, pipeline in terms of deal conversions of continuous absence for employer. We have actually done a lot of work in this area in terms of making the product deployable with employers in a much simplified fashion. but we're also talking to some of our carriers about partnership around this and how we could work together because our primary goal is actually the carrier market and to make absence a real part of the employee benefits industry. Turning to the last or the second last slide, I think it's slide 17. So revenue guidance for this year, we're going to put it out there at between 147 and 152 million. And this is really supported by the strong pipeline we have in. Albeit, as I said last year, we saw that pipeline. It just took a long time to get negotiations and decisions and so on done, but we're very optimistic about this year. We continue the strategy of driving operational efficiency with Infinius, and we're going to continue to drive up that positive cash flow and profitability in the business for this year. We're also continuing to drive sales in North America, but we're actually looking to expand our product outside of our target market of North America. And we do see some opportunities to do that, particularly with the multinationals in different countries. And so we're looking at that as well at the moment. And the pipeline remains solid, you know, and very much Finneas being the market leader in employee benefits in North America today. So switching to my last slide, slide 18, subscription fees. You and I put these guidelines out in 2024. And we're still confident we'll make these guidelines in terms of subscription fees moving up to 65% of the total revenues in FY27 and 75% or thereabouts in 2029. R&D investment will decrease, as Ian said earlier, to 30% next year and 25% in 2029. And again, as Ian said, we reserve the right to expand that R&D if we see new opportunities. But that's the way things are trending in terms of percentage of total revenue for R&D spent. And then the gross margins and EBITDAs, they're almost where we said they'd be back in 2024. They're almost there now, as you can see from last year's results. But we'll drive them on and we'll get them up to 80% for gross margins and 40% for the EBITDA. So MakeInfinity is a very strong company in terms of future growth. I just lastly would like to point out the slide 19. We have an investor roadshow, which we'll be hosting on the 25th in Sydney. And all the details are made available. And if you contact Howard or Jackie in Atomic, you can get all the details. We're looking forward to it. So that's it for me. And for me, I think positive year, looking forward with a very positive attitude in terms of the future. and we're open for questions now. Thank you.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Tim Wilson with Macquarie. Please go ahead.

Hi, gentlemen. Thanks for the update. I really had one main question. With your subscription, mixed targets for FY27. I won't worry about the 29 ones, just the FY27 ones. If you look, just think about the sort of revenue guidance you've provided today for 2026 and I appreciate that's an overall revenue guidance rather than calling that any sort of subscription versus services number. it just seems to imply a very significant acceleration in the calendar of 27 to hit those targets. Can you just sort of help us unpack your assumptions behind both that near-term and then the sort of medium-term number, please?

Yeah, Tim, thanks for the question. I'll start off, Ian, on that one. But the way that this business is set up is, as I said, long-term contracts, with milestone events in terms of things we have to do with customers as they grow their business with us. Our focus through 26 and 27 with our existing clients is going to be very much on migration and growth of their use of our product, plus the cross-selling as well. So we've kind of got locked in revenues and foresight of events in the next year. that should give us a nice lift in terms of our subscription fees into 2027. And we've got a nice pipeline as well, some of which we didn't convert in 2025, but we'll convert in 2026 and beyond. So, you know, we're feeling comfortable about the 65% revenue, sorry, percentage next year. Do you want to add to that, Ian? Yeah, so what you're seeing there in terms of what we reported in 2025 was a higher contribution, almost a 5% increase year-on-year in terms of the recurring fee, subscription fee. So we're looking to see these steps continue to move forward. You've also seen that the subscription fee percentage as a proportion of revenue has increased, and we expect that percentage to increase in terms of year-on-year growth on the annuity to grow in 26 as we move into 27. So we definitely see 26 as being a stepping stone to achieve. It's not all going to be laid on 2017. Secondly, you know, to Michael's point there, we still see a significant contribution of that growth coming from existing customers. And as they upsell, and a lot of them are getting very significantly through their programs of – reducing legacy systems, and some are really starting to get very engaged around it, pushing us hard. Michael mentioned earlier on about Guardian starting halfway through the year. We have other very large customers out there pushing hard to make that happen. So we see that as a big factor in terms of that growth. So we do have line of sight, and the way we put our plans together is very much on a bottom-up basis. We look at individual transactions for customers. So we recognize that it is a significant growth. We do have line of sight, of course. It's not, you know, 100% guaranteed, but it's still there to be had.

So maybe just on that, are you sort of seeing across there for the 26th year an acceleration throughout the quarters? So are we thinking that sort of obviously consistent with what you've given us guidance for in FY26, but is the fourth quarter, for example, or second half even, like, materially accelerated versus the first half?

I think the tab you just have to put in there is that these customers move at their own pace. We certainly have plans in place to close business in the first half of this year, and we believe that will materialize. But it could get pushed out a bit. But firstly, if it closes in the first half, then that gives a lift to the second half automatically. That second half would get an automatic lift, and we do see more business closing in the second half as well. So we see both halves contributing, but the first half contribution helps the second half. So just by mathematical calculation, the second half will have a better revenue outcome than the first half.

Yeah, I'm trying to think about that split as effectively. If you were to annualize the second half, are we going to be – effectively materially, well, I expect we will be, but, like, you know, significantly above, you know, on an annualised second half, what your guidance range is, because that's sort of the, you know, maths that need to work to hit those 27 targets, unless you have an acceleration in 27 itself, of course.

Yeah, we have both. Yeah, we do have both. I mean, we have big bumps in 27 as well, which we've already got locked in in terms of our revenue forecasts with existing customers. But we have them coming in on the second half of 26 as well. And as Ian says, pipeline we're closing now. So, you know, you'll see more deals coming through in the first half as well. So we're coming off the back of a good AOR, Tim, you know, 10% growth on that. And we still see deals closing in the next couple of quarters. And then we see the second half getting even better in terms of the upside. But next year is going to be another opportunity for growth with existing customers. So we don't make these forecasts willy-nilly based on a lot of new name wins and potential and so on. We're very much looking at our customer base. We're growing large chunks of business on Phineas with these large carriers. So we're able to be a bit more comfortable in terms of predicting These guys are like oil tractors. They take their time to move. But once they get going, it's very hard to turn them. So you know where they're going. And we can predict that in terms of our numbers with that growth that we're seeing on our platform.

Thanks, James. That's my questions.

Thank you. Your next question comes from Richard Harrisburg with Caneco Genuity. Please go ahead.

Hi, Michael and Ian. Thanks very much for the opportunity and congratulations on the great results. I thought there was a question on the revenue. Look, you know, I was just very kind of touched on it before. There's been existing growth in your customer, you know, their own sort of book, which is revenue going forward as opposed to being on a per seat basis. How much of that sort of future revenue growth is underwritten by that, which I guess is a question on, you know, how much you expect general insurance premiums increase on average based on historic?

Yeah, well, we're expecting, Richard, sorry, how are you? And nice to talk to you again. Thanks for your question. But we're expecting by the volume of business that's coming across in terms of migrations we're working on, we're expecting their usage of the system to grow and their volume on Finneas, as in their premiums on Finneas to grow. And that basically gives us a clip of the ticket every time we can crash through a milestone tier in our pricing. And so that's what gives us that kind of stickiness and that long-term confidence. These are five-year contracts with these carriers, so they're really locked in. And to be honest, you know, they put us under enormous pressure to get the product into shape so that they can get this migration done because their legacy systems are faking and they know they're not going to carry them. to the next world that we have with AI and so on. So that's kind of given us the confidence in terms of the growth that we can see coming on the platform. And we also see cross-sell and up-sell to existing clients. And again, we have some of the biggest customers in the segment, the main we have in the States. So again, you know, we see upside there. They won't buy a cross-product until they feel that they're over the line on the products that they've already got, as in it's already done and they've got everything over and so on. So that's one thing that we've kind of been sitting patiently to kind of wait for. There's no point in selling or sending sales guys into them when they're in deep throes of migrating to Phineas. So that kind of gives us, again, the confidence that we're all positive in terms of the focus. So the system is a large system of records. very complex in terms of what it does, highly regulated. And these carriers need to get off the junk that they have in the back office. Large 50-year-old mainframes wrapped up with a lot of technical debt. So they're as motivated as we are to get them over to the cloud-native convenience platform.

Yeah, thank you. That makes a lot of sense. I guess maybe a different way to ask the question, you know, just purely based on growth in, you know, volume of existing customers and excluding cross-sell, up-sell and sort of new customers signed. Is that growth what sort of gives you the confidence to get to the 147 million euros on the lower end of the guidance? And then on top of that, the reason for the range in the guidance is, you know, the strong pipeline you guys are seeing up?

Probably a good way to look at it. I'll let you answer that, Ian. We've been conservative how we've managed expectations in the market. We don't want to upset anybody. So we've left a range and we are confident in terms of the projections and stuff like that that we do put out. Do you want to answer that in any kind of other way, Ian? Yeah, I think, Richard, and I also, a large proportion of our confidence is derived from existing customers scaling on the system. You know, 40%, 50%, you know, our confidence would be around that, you know, just on that singular element of those. So the more we stay focused on those customers, the more we deliver the capability. a strong bedrock for us in terms of how we move forward. In terms of the range, there are other factors in the range as well. We both alluded to the fact that opportunities can slide up and down. We see that. They don't often go away, by the way, but they do slide up and down in terms of timeline. So that's one of the reasons why we would give a range. And another reason would be that when we look at the opportunity profile, sometimes you've got a small deal, a medium-sized deal, or a large deal, and the size of those deals in terms of the revenue they can generate from videos can be quite significantly different. So that's another reason why you'd give a variance in terms of range. I think the other area as well that Asma mentioned is just around the services fees. If we work on a particular deal with an SI and they want to take on a much more expansive role, sets progressively growing so they can take on more work. So particularly, they may take up more work than we had originally anticipated or may have performed last year. And then that can have an impact in terms of service revenues we obtain. But as long as that's contributing towards growth and subscription revenues, we can work with that. So all those factors contribute towards that range.

Really appreciate all the extra color there. Maybe I'll just ask one more question. It was great seeing the operating leverage come through and especially with some of the cost efficiencies you've been putting through the business. Just looking forward to FY26, do you think those costs are sort of expected to remain around these levels? Are there sort of further areas you can squeeze out there? Yeah, or what's the right way to think about that?

Yeah, I'll take that one, Michael. I think for your planning, you know, as you're doing your modelling yourself and the rest of the analysts on the call and investors, I think you should be thinking about a cost overall, perhaps increasing the range of 3% to 4%. I reverted to Amazon aid that you asked there earlier on in the conversation about driving efficiencies. We've driven a lot of those efficiencies through the product set at this point in time. So as we expand our footprint with customers, we will see the cost of sale going up with respect to that infrastructure bit. So that's happening. Unfortunately, like everybody else, we're suffering from third parties increasing costs, and we've also put through some salary reviews. But I would plan on about 3% or 4% increase in overall costs. But internally, we're still looking at ways of driving even that down. But from a planning point of view, I'd look at it that way.

Great. Thanks so much, and congrats again on inflection. You're in the business. Thank you.

Thanks, Richard.

Thank you. Your next question comes from Siraj Ahmed with Citi. Please go ahead.

Citi, can you hear me? Yeah. Hi, Siraj. Hi. Just first thing, maybe I missed this. Just the split between subscription and services that you're expecting next year. Can you help us with that?

We guided next year. We set a set of targets for next year. where revenues would, or sorry, subscription revenues, product revenues would be 65% of the overall total revenue, meaning services is 35%.

Sorry, for FY26?

For 2027.

Yes, sorry, I got that. Michael, just trying to think about next year, right? Can you give a split maybe just on the revenue next year, just between subscription and services?

I know you just took it there, Michael. I think, as I said, deal size can vary a bit, but I guess if you look back in time, we were approximately 50% in terms of subscription fee. Two years ago, last year, 55%. We've got to get to 65% by FY27. You can kind of make your own assumptions about what we're trying to target, you know, as a stepping stone to get there. But we do see some variability about it. We've given guidance in total revenue, but we have to, you know, see what happens. But this year had to be a stepping stone to getting towards FY27. Okay.

The reason I'm asking is, and you should follow up to that, is so ARR of 78.3, right, at the end of the period, I'm guessing it's a bit lower now because of FX, or is it still the case with 78.3? It's margin.

Everything is lower, including the service. So everything gets hit by FX. So it's kind of the percentages will still hold, but revenues are going to go up and down in real terms based on FX.

Yeah. So the reason I'm asking is it's 78.3. It seems like, so let's say services stacked slightly up, you sort of need to get closer to maybe 85 million of subscription revenue, especially the step-up that we're talking about for next year, right? And you're starting at 78 million. That would be like a 108% sort of conversion, right, about this versus 105 this year. So is that just confident in the pipeline, Michael, that you mentioned that your pipeline is quite strong and you think quite a few of them will close, or is it I can imagine quite a few customers are going live, and so the volume is organically picked up. It's just key to understand that conversion rate from ARR to subscription revenue.

I think it's mostly growth that we see on the platform in terms of volumes, which will lead to, you know, subscription thresholds increasing. That combined with some cross-sell is mainly what we see in front of us in existing clients throughout. And then obviously the new business, new names are kind of gravy on top as they start converting. Now we're hoping to see a better kind of uptake in terms of new name as well, particularly in our domain market in North America. I think I have flagged in the past that because of some disastrous attempts for core system replacement from some competitive core systems vendors who came in from other domains and carriers really got burnt and it kind of caused a lot of angst in the market and made it difficult for carriers to come back out again and to look to do a major migration off their legacy. You know, we have just taken the brunt of that in terms of the backlash of that is that the carriers will freeze. because they have to reset. A lot of them have gone back to legacy, those carriers that had those disasters. But they've learned a lot. And I think the next time they come out, they'll recognize a vendor that is purpose-built and ready to go for them. And of course, as we keep, you know, doing things with our own carriers, we're, you know, proving out the product and proving out that our carriers are getting good efficiencies on the product. So again, you know, It's a slow-moving industry. It's a very big product. These projects are big. So, you know, but it's very sticky and long-term, and that's what's, I suppose, something that we want to call out as well. It moves slow, but it's very solid.

Got it. That last one, just in cross-margin, So you're just clarifying, so the full year gross margin this year had a negative impact from the provision, right, which sort of unwinds next year from the sounds of it. So you're already at 76%. FY27, you've retained 75. Is there anything that should be going up? Just trying to understand whether there's something I'm missing.

Thanks. We would expect a slight improvement in gross margin as we go through to this year. But we don't want to go ahead of the target we set for FY27, albeit we've already achieved it. But keeping around about that mark for this year, we expect it to be reasonably consistent with last year with perhaps a slight improvement.

All right.

Thank you. Okay. Thank you, Charles.

Thank you. Your next question comes from Jules Cooper with Shoreline Partners. Please go ahead.

Hi, Michael and Ian. Can you hear me?

Yes. Hi, Jules. Good to talk to you again.

Yeah, absolutely, and great set of results and outlook. Michael, I just wanted to sort of dive in to, I think it was on slide 16, the third mark there where you talk about a focus on legacy system migration. Now, there's a huge opportunity there. in the industry and particularly with your customers given their scale and I suppose the small footprint today that you've got with those customers and you're making good progress. As we think about AI, we are hearing from lots of different vendors and customers the improvements in velocity that they're seeing in real time and it's only going to get faster. Do you think that – and I know when you're migrating a book, it's not just about the speed of coding, you know, all the people side and the project, you know, the change management, et cetera. But do you sort of see this as a real moment where you can kind of unlock those legacy books that before the cost and the risk was just prohibitive and held people back? Just like sort of get your perspective on that if I could.

Thanks, Jules. I do actually see it as a kind of moment of truth for these carriers. For years and years, they've been reluctant to take those big back-end systems out, those systems of record that they have. They've gone through the dot-com. You would have imagined they would have wanted to reinvent them so that they were totally internet-type systems, but they did. They built front-ends. You know, they've gone through the mobile phone, and they've built front ends to do mobile phone transactions and a lot of technical data around the old back-end systems. They've gone through the cloud, and some of them have been innovative enough to port from a mainframe to a cloud, Amazon or Microsoft, whatever they've done, but it's still the same old system. But the AI revolution is basically going to really threaten those old systems because AI technology performs on data. And having the data in a real-time, you know, full kind of rich sense is what AI will thrive on. And also having a modern system with the kind of workflow automation that you would expect in a modern system, you know, really gives AI all the tools that it needs to perform and move on. So, in the future, we see the back office, you know, And the work in back offices being reduced, all that paperwork and all that kind of crud work, I call it, that's going to be reduced. And it's going to give people more time to focus on the customer and more time to do other services as well for the clients. So, you know, over the next few years, I think AI is really going to change the industry. And being a system of record that we have today as a modern cloud native one, we're ready to go. in terms of the AI operating with us. We are in a regulated environment, so we'll have to go as quickly or as slowly as the regulators allow, and also what's comfortable with carriers, because a lot of them are very ethical, and they don't want to mess around with customers. We will not be making decisions about claims. We will not be turning down underwriting opportunities for any kind of biased reasons. And we have to be really careful in terms of how things are done in Phineas. But we're at one with our carriers. They all feel the same about this. But they all do realize that the world doesn't stand still. And those old workhorse systems that they've had for many years, they've basically gone past their sell-by date. Those who still think that they should keep them and work away are probably the ones that will disappear in the future. and the others that modernise and go forward will actually have the revenues and margins and so on to be able to buy those books of business. That's my own opinion, so I just want to put that out there. It's how we think of it.

Yeah, you painted a really good picture there of the pressure to migrate and move those books of business. I guess my question was more in the mechanics of it. you know, the things that have held them back in the past as they've gone through all these... Okay, yeah, yeah, okay. Is it sort of making it easier at the board table to go, hey, we could actually do this at half the cost and half the time and with half the risk?

So, like, we've introduced AI, believe it or not, onto the back-end books of business that they've got and our SIs are working on that. So we're using LLMs to basically stack and get ready employers that are going to come across to Phineas. We've been building out then on our side tooling to allow us to validate and read all of that in. So that will make it easier as well. And we've been working with one of our big carriers on that in partnership, and that is going well as a set of tooling. And then last but not least, you know we put a lot of money into building out the full suite and making it easy to onboard on Phineas. In other words, that it's purpose-built. and the carriers can easily put business over. We don't have a huge big project at the front end of every time we do an implementation, which is what those carriers who failed ended up doing, having to build software with those vendors. We don't have that. So we're making it much easier to onboard, upgrade, integrate, and migrate to Phineas. And so the time has never been more crucial for them to move, but it's also never been easier in terms of our industry and the domain we focus on. Is that what you were getting at?

Yeah, excellent. Thank you.

Thank you. Next question comes from Sinclair Currie with MMLS Australia. Please go ahead.

Hi, good morning, and thanks for the presentation. Just had a question about competition, defensive movements among the competitors and the M&A, and I was interested, maybe a little bit of an overview of how you see the competitive environment, and if you could throw in you know, any statistics maybe around, you know, what percentage of RFPs you've been successful with or something like that, just to bring that to light. That would be really interesting. Thanks.

Yeah. Hi, Sinclair. So, look, the competitive environment within the employee benefit space, core system space in North America, it's kind of levelled off a little bit in terms of the core vendors. And you would have seen that VITAC was acquired by Majesco And Mochesco has kind of multiple systems that they've acquired over the last several years, addressing multiple variants of the markets, you know, across all kinds of insurance, P&C and whatever. Now they've added pensions and a pensions book to their business. Vitek had largely retreated from the group benefits market over the past 12, 18 months. And they're really trying to focus in on their pensions portfolio. So that Bytec, Majesco, it was a merger rather than an acquisition, I believe, and purely a kind of an agreement between the two PUs that own the business and that they would basically collaborate. So obviously that takes one competitor out, you know, when it comes to RFPs and stuff like that. But we kind of had seen Bytec. We hadn't seen them in the market much anyway. And about five years ago, they would have been the guys that were up and coming because they'd come out of the pension space and into the group space with their admin system. And five years ago, we weren't ready because we were still hard at it with New York Life. Going back to what I said to Jules, you know, we migrated six books of business of old systems for New York Life to give them a four and a half billion book of business on Phineas Admin Suite. and they went live with voluntary this year as well, and absence. That's the only carrier that has fully eliminated legacy. And they're still standing on the Phineas platform for the last three years running that full book. So, you know, when we talk to clients, they kind of get great confidence out of that, and they do talk to New York Life and so on, and they're a good reference for us and a good client, a good partner. But a lot of our other carriers on the big end of the market are also in the process of migrating as well, and they're moving quickly to the platform. So I think, you know, momentum is building. So we're not seeing other vendors really of any significance in the space. But, again, we see, you know, tool set P&C type vendors coming in and out. And it depends, you know, it depends on the carrier. Some carriers get very excited about maybe techie techie type software. But, you know, that tends then to be a big project build and that's going to cost them a lot of money. So it's not necessarily the best outcome for them, but look, you know, everybody makes their own decisions. So I think as a mainstream vendor now in our space, we've got market dominance in terms of a big slug of the employee benefits market. And we're kind of getting the new business deals as well, and we're getting the cross-sells. But we still see several years ahead of us where we really want to become that, you know, true partner to the employee benefits industry, that big system of record. But, like, you know, with the AI and everything else, that's going to change into, you know, much more intelligent and automated system for the future carriers that will go on our system.

Thank you. Thank you. We have a follow-up question from Suraj Ahmed with Citi. Please go ahead.

Mike, Mike, somewhat linked. Can you just touch on the whole agenda stuff that you're trying to demo in late March? How do you think we're pricing this? What's the economic model you're thinking in terms of this?

Sorry, Suraj, I'm finding it very difficult to hear you. Can you hear that in? If you can, go ahead and answer. With the economic model with regards to AI, is that what you're referring to, Shiraz?

Yeah, for the agentic features you're rolling out, right, in late March, in the re-announcing.

Yeah, I mean, the pricing model we have for our core systems is based on the premium income that the customer has with regards to all the core systems except for Absinthe, which is based on the number of employees The agentic AI is bolt-ons, add-ons, you know, that's sitting on top. And depending on the nature of it, it will be charged in different ways. So, for example, we do document intelligence, document summarization. So the pricing of that is based on the number of documents that you summarize and provide intelligence on. So it's going to be very much on a unit price of volume-based. We're giving customers the opportunity as well to decide, for example, if that's types, which cases they apply it again, so they can pull the lever up and down and decide to what extent they want to use that AI capability. We also have case intelligence. So that'll be the agentic AI capability. And again, they can decide the cases or the customers, etc. But it'll be very much on a volume basis with the opportunity for the customer to pull the lever up and down, a bit like a fuel pump. You decide how much petrol you want to put in the tank. Yeah. And just to mention, we're not putting a huge emphasis on charging for all of this because we see it as built in. It's embedded. And so we really will, you know, it's a usage based model. But, you know, we're not looking like we have to keep modernizing and keep bringing a more compelling platform to our clients. They're already paying us good money for the product. So we continue to look at opportunity to increase our fees by cross selling and upselling. but we'll also deliver modernization within the platform continuously. And that goes back to the R&D program that we have. So we're looking to really make a sticky long-term relationship with these carriers so that they feel very comfortable with us as partners.

Thank you.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Kelly for closing remarks.

Thank you Darcy and thanks Ian as well for today and coming along on this call. Appreciate all the questions from the analysts and indeed everybody who's listened to us today. As I said, we're feeling pretty positive about this year and next year and we're looking forward to the opportunity to present everybody at the end of March. I think it's the 24th of March. So please come along to that if you can and there'll be a few of us down there at the time. And so it's an opportunity to meet some of us as well in person. Thanks, Darcy. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.